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Could global smart cities be funded by U.S.-style muni bonds?

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While enthusiasm for smart city initiatives is not hard to find in India, project financing is. But a U.S.-style municipal bond market could be the solution.

In an article on The Wire, two economists argue that smart city plans in India desperately need to develop sources of private financing to become reality.

“One predominant feature of ULBs (urban local bodies) in India has been the lacklustre flow of private capital,” said Shamika Ravi and Ankit Bhatia from Brookings India and is a Research Assistant at Brookings India. “The improvement of smart cities in India, however, will essentially hinge on the ability of those cities to improve their own revenue, raise local finance and attract greater private investment.”

The researchers say that as India’s cities explore ways to fund the myriad smart city projects on the drawing board, municipal bonds offer a major source of both financing and citizen participation.

“Currently, India’s municipal bond market is largely untapped,” they say. “Because of severe constraints in both supply and demand, only a limited number of ULBs have the experience of raising funds through municipal bonds.”

However, in order to increase smart city infrastructure financing and deepen the Indian muni bond market, several key reforms of the existing legal framework are needed.

The researchers say Indian lawmakers should explore the regulations around the U.S. municipal bond market that enable it to remain such a strong source of infrastructure funding.

“The federalist Indian government can learn from the US and its highly advanced municipal bond market,” they said. “India’s ability to replicate the US general obligation bond model will largely depend on the ensuing capacity of local governments to pay their obligations with a good track record.”

Read more at: http://readwrite.com/2016/09/12/funding-indias-smart-cities-needs-u-s-style-muni-bonds-cl4/

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